The Present And Future Is In Affordable Real Estate

The impact of economic issues such as the weakening Ringgit and rising unemployment is already being felt in the industry – latest data from the National Property Information Centre (NAPIC) shows a year-on-year decline of 18% in property transaction value in Q32016.

Affordable Homes On The Forefront

According to Boyd, the situation and problems faced in the Malaysian property market are parallel to what other countries in the region are experiencing; as revealed by a recent survey done by Savills on developers’ plans and building prospects across Asia Pacific. Consumer demand for affordable accommodations has never been so robust; hence it is no surprise that the majority of developers responded that affordable housing tops their upcoming product offering list.

This is followed by senior housing, logistic parks, industrial and distribution facilities, single family homes and resorts with family housing (multi-generational units) rounding up the list.

Zooming in on Malaysia, Boyd confirms that the survey results perfectly encapsulate the 2017 building trend in Malaysia – residential units which are affordable to the masses is the single category which offers tremendous potential to local developers. The ‘affordable home’ class will replace the largest and most profitable form of development in Malaysia for the past 40-50 years, i.e: the‘single family homes’ category which is now undergoing a tired phase.

Besides that, some specialist developers and fund houses are looking to build logistics parks and industrial distribution centres as well as storage facilities around major cities, particularly in Klang Valley, Johor and Penang. This trend aligns with the rapidly growing demand for same-day distribution services as a result of the e-commerce boom in Malaysia.

Smaller Homes & Households by 2040

The Malaysian population is set to grow 23% between 2020 and 2040; that itself is a positive indicator for the housing industry. However, Boyd says that demand for homes will increase at a disproportionate in the next two decades as shrinking household sizes will result in a whopping 47% growth in household number by 2040. It is projected that the average Malaysian household size will decline to 3.4; which was Singapore’s average in 2010. Future first-time homebuyers will be in for a tough ride as the supply-demand gap will definitely widen even further.

As millions of post-millennials come of age, starter homes will continue to fuel the residential market moving forward. Hence, it is only inevitable that homes will get smaller due to the affordability issue and the lack of land in prime cities. The future housing landscape in local cities at least will mimic that of Singapore’s current one, where the typical family reside in a 3-bedroom apartment of roughly 700 sq ft in size.

Senior Housing Not Quite There Yet

Malaysia might achieve an ageing nation status by 2020, when the percentage of the population aged 65 and above, reaches 7.2% as reported by the Statistics Department in December 2016. Even though senior housing is a lucrative market in other Asian countries such as Japan and Korea, Boyd projects that we have a long way to go before the demand for senior housing picks among Malaysians.

Ageing locals prefer to stay in their own homes close to old friends and neighbours or with their children/relatives. As Boyd jokingly said, many do not see the appeal of constricting themselves to 600-800 sq ft of space with the same spouse they have had for the past 40-50 years. Our elderly prefer to be among or close by to their family and friends.

Developers To Restrategize

Homebuyers are not the only ones scratching their heads over the cost of living – local developers are struggling too, as housing development is becoming a very expensive business. Local developers require huge amounts of capital; even a 500-acre project now require billions of Ringgit. Hence, Boyd believes that as soon as in these next 5 years, we will witness a structural change in the housing market, where land banking will be a thing of the past. Instead, developers will tie-up with financial institutions or pension funds as an equity partner to develop their property projects.

Some have already made the move – the recent partnership between EcoWorld Group and the Employer’s Provident Fund (EPF) to build two townships in Batu Kawan, Seberang Perai is one such example.

Boyd suggests that more developers should jump onto the bandwagon and strive to build their brand equity instead of relying on the age-old but cost-heavy strategy of land banking.

The Resort Potential

The residential market aside, Boyd feels that there is a lot of potential in the local real estate market which has yet to be exploited, particularly in the hospitality sector. With the rising wealth of upper-middle-income households in Indonesia, Singapore and Hong Kong; the demand for holiday destinations and weekend getaways is on the rise. An increasing number of these foreigners end up in popular retreat spots such as Koh Samui, Thailand and Bali, Indonesia, where they are willing to spend on average a thousand dollars per night for villa accommodations.

On the other hand, except for one or two small facilities in Langkawi and Penang; Malaysia gets none of this business; which is a waste as our country is equally as attractive with its tropical climate, rich culture and delicious local fare. Boyd strongly believes if we build more of such luxury resorts and destination accommodations, many foreign holiday-makers will come into Malaysia by the droves.